UK construction
companies recorded another drop in business activity during November.
The pace of decline
moderated to its slowest since July. However, new work continued to fall
sharply amid reports that domestic political uncertainty had led to indecision
among clients.
The headline
seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index rose
to 45.3 in November, from 44.2 in October, to signal the slowest drop in
overall construction output for four months. Reduced business activity was
attributed to a lack of new work to replace completed contracts.
In some cases,
survey respondents suggested that unusually wet weather in November had also
weighed on output.,All three broad areas of construction work recorded a fall
in output during November, with civil engineering the worst- performing
category, followed by commercial building. Meanwhile, a much slower decline in
housing activity helped to moderate the overall drop in UK construction output
signalled by the survey in November.
Latest data pointed
to another sharp reduction in new work received across the construction sector.
Lower sales volumes have now been recorded for eight consecutive months, which
is the longest phase of decline since 2012-13. Survey respondents commented on
subdued client confidence and ongoing hesitancy to commit to new projects,
largely in response to domestic political uncertainty.
Construction
companies reported a sustained decline in their staffing numbers during
November. A number of firms noted that softer demand had prompted cost-cutting
efforts and led to the non-replacement of voluntary leavers. Mirroring the
trend for employment, latest data revealed a solid reduction in purchasing
activity across the construction sector.
Weaker demand for
construction products and materials allowed suppliers to catch up on their
workloads in November. As a result, vendor lead-times lengthened to the
smallest extent since September 2010.Subdued demand for raw materials led to
fewer price rises by suppliers in November.
Moreover, latest
data indicated that overall input cost inflation remained the among the lowest
seen since early-2016. Looking ahead, construction companies remain relatively
cautious about their prospects for growth over the course of 2020.
The degree of
business optimism was little-changed since October and still much weaker than
its long-run average. Reports from survey respondents suggested that this
largely reflected concerns about the domestic economic outlook and worries that
political uncertainty will continue to hold back client confidence.
Tim Moore,
Economics Associate Director at IHS Markit, which compiles the survey: “UK
construction output fell again in November as Brexit uncertainty and the
forthcoming General Election continued to send a chill breeze across the
sector.
"The speed of
the downturn in construction work eased a little since October, but the survey
continues to signal a notable drop-off in business conditions compared with the
first half of 2019.
"Greater
hesitancy among clients led to a decline in overall new work for the eighth
consecutive month during November. Construction companies reported a
particularly sharp fall in demand for commercial projects amid a greater
squeeze from domestic political uncertainty and delayed investment decisions.
"House building
has been the most resilient category of construction output in 2019. However,
it remains a concern that overall volumes of residential building work have
dropped in each month since June, which is the longest phase of decline since the
start of 2013.
"Greater
spending on transportation and energy projects had been expected to help boost
infrastructure work this year and next, but survey respondents indicated a
sustained soft patch for overall civil engineering activity in November. Some
construction companies reaffirmed their concern about the delivery of road and
rail projects, with delays to contract awards acting as an additional headwind
to growth projections for 2020."
Duncan Brock, Group
Director at the Chartered Institute of Procurement & Supply, said that
Brexit uncertainty, an impending General Election and wet weather all combined
to keep the construction sector firmly in its contraction hole last month.
Purchasing, output
and new orders all fell again, he continued: "Construction firms have not
seen dwindling new orders for this length of time since 2013, as clients
continued to defer spending large and small, citing political indecision as the
cause of their non-committal. Preferring to hold on to cash reserves rather
than spend in the current climate, this also translated into tighter job hiring
strategies. Employment levels were cut again in November, and contributed to
the longest period of job shedding for more than eight years.
"Not even the
glimmer of hope offered by a moderation in input prices to one of their slowest
rates since March 2016 was enough to dispel the gloomy business expectations
felt by the sector, which continued to run at lower than survey average levels.
The sector’s downhill course, even with a slight uplift in the figures this
month, looks set and there’s no sign construction can dig itself out just
yet."
